'Sashakt' plan to resolve NPA will go live in a month: Sunil Mehta

Interim Finance Minister Piyush Goyal on Thursday held another round of discussions with bankers to discuss the “Sashakt” plan – submitted by the Sunil Mehta-led committee to resolve NPA crisis.

Briefing the media after the meeting, Sunil Mehta, non-executive chairman of Punjab National Bank, said that the focus of the meeting was to explain the process of 'Sashakt' to all bankers.

“All the banks have agreed to adopt Inter-bank Credit Agreement under 'Sashakt' and will be taken up by individual bank boards,” said Mehta, non-executive chairman, PNB.

He said that legal representatives of all banks, public and private, were present in the meeting and that the modalities were explained to them.

The committee had submitted its recommendations on Monday suggesting a five-pronged approach to pull the abysmal banking sector out of mounting non-performing assets. Mehta said that the Sashakt plan will come into play this month.

The Mehta committee suggested “turning around” bad loans either by banks themselves or through an Asset Management Company (AMC) depending on the value of default.

For loans below Rs 50 crore, usually seen for small and medium enterprises, a SME resolution approach will be initiated. It will be a “templated approach” at the helm of a steering committee. A dedicated vertical will be created to turn around the asset in 90 days.

For bad loans between Rs 50 crore to Rs 500 crore, a window of 180 days will be open to have “pre—IBC” solution. The lead bank in the consortium will bring a resolution plan to turn around the asset. Plan approved by 66 percent of consortium members will be adopted.

The consortium of banks will enter into an ICA, giving lead bank the right to formulate the action plan for revival. "ICA is a building block in the process... The objective is to avoid the delay seen in the past. Bank boards will take up formulation of ICA in two days," he said.

An independent AMC or Alternate Investment Fund (AIF) will be created for bad loans above Rs 500 crore. It will raise funds from institutional investors and price of the asset will be discovered through open auction. The AMC will become a “market maker” and will participate in “operational turnaround” of the asset. It can also bid for the asset in National Company Law Tribunal (NCLT).

The committee also suggested having an open asset trading platform to auction both, performing and non-performing assets.

All these methods will continue along with the on-going resolution under IBC.

Indian banking sector is sitting on a pile of huge NPA of about Rs 10 lakh crore. In the last fiscal, PSBs collectively registered losses of Rs 87,300 crore. Of the 21 PSBs, only two banks posted profits.

The net loss posted by state-owned banks was about Rs 85,370 crore in 2017-18 as against a net profit of Rs 473.72 crore in the previous fiscal.

Weak financials due to mounting bad loans have pushed 11 banks, out of 21 state-owned banks, under the PCA framework of the RBI.